The Effect of Vertical and Horizontal Practice Consolidation on Physician Specialist Referral Network Size, Strength, and Stability

The health care industry in the United States is experiencing consolidation in all parts of the system, including insurers, hospitals and health systems, and physician practices. This consolidation is a growing area of concern among regulators, policymakers, and consumers. While the effects of competition and consolidation on prices and premiums in health care markets are well known, how consolidation affects the behavior of health care providers is not well established. It is important to understand the extent to which consolidation influences the referral patterns of physicians. Referral networks are significant because physician referrals heavily influence the type, timing, quality, cost, and convenience of the care patients receive.

We use the SK&A physician dataset to identify four different types of consolidation events that have occurred in the United States from 2009-2014 among physician practices. We identify two types of vertical consolidation (practices becoming owned by either health systems or hospitals) and two types of horizontal consolidation (practices becoming affiliated with medical groups or merging with other physician practices). We then link these data using the National Provider Identifier to the Medicare Physician Shared Patient Patterns data (2009-2014) to assess the impact of consolidation events on the referral networks of specialist physicians. The Physician Shared Patient Patterns data is generated from Medicare claims to track shared patients in time among physicians, which are proxy measures for the existence and importance of referral relationships between individual physicians. We examine the size, strength, and stability of these physician referral networks. We use a dynamic difference-in-differences (event study) approach to estimate the effect of each type of consolidation on several network analysis outcomes among specialty care physicians whose practices experienced a consolidation during the study period. These network analysis outcomes include the size (number of individual physicians a physician receives referrals from), strength of these networks (average number of shared patients within a referral relationship) and the stability of this network over time (percent of physicians making referrals to a physician in the current year who also did so in the previous year). We control for geographic market and physician specialty. Vertical consolidation appears to accompany a meaningful and significant decrease in the size of physician referral networks, but this decrease precedes the consolidation event. Horizontal consolidation appears to increase the size of these networks, but this increase occurs prior to the event. Strength of these networks does not change meaningfully over time. Stability of referral networks does appear to be disrupted due to both horizontal and vertical consolidation events.